微观经济学PP.pptVIP

Chapter Objectives Market equilibrium Market disequilibrium Market shifts Causes of market shifts Matching Supply and Demand Buyers and sellers are two sides of market. Buyers determine demand. Sellers determine supply. The buying and selling decisions are made independently. Thus, there is no reason why the amount buyers want to purchase is equal to the amount sellers want to produce. Matching Supply and Demand Since the purchase and production decisions are independent, quantity demanded need not equal quantity supplied. There are 3 possible cases: The case of excess demand The case of excess supply The case of market equilibrium The Case of Excess Demand Excess demand occurs when, at a given price, buyers want to purchase more of a good or service than sellers are prepared to supply. Excess demand means that at a given price, quantity demanded exceeds quantity supplied. In this case, the market is in disequilibrium and prices are under upward pressure. The Case of Excess Supply Excess supply occurs when, at a given price, sellers want to produce more of a good or service than buyers are willing to purchase. Excess supply means that at a given price, quantity supplied exceeds quantity demanded. In this case, the market is in disequilibrium and prices are under downward pressure. How to Eliminate Excess Demand or Excess Supply? The gap between quantity demanded and quantity supplied is closed by the market mechanism through changes in prices. Adam Smith, in The Wealth of Nations, used the term Invisible Hand to describe the market mechanism. Individual actions by buyers and sellers result in a positive outcome without any government intervention. The Case of Market Equilibrium A market equilibrium occurs when quantity supplied and quantity demanded are equal. The equilibrium price is the price that causes quantity supplied to equal quantity demanded. At equilibrium, the market is in balance, and the amount that buyers want to purchase is equal to the amount